The Podcast of the Lotus Eaters

00:00:00.000 Hello, welcome to this new episode of RealPolitik. I am your host, Firas Modad. I'm very lucky today to be joined by Albert Marco. He is an expert on financial markets, geopolitics, American politics, and a lot of other topics. Albert, thank you so much for joining us. How are you?

00:00:18.520 Good, good. Thanks for hosting me.

00:00:19.820 My pleasure. My pleasure. I thought I'd benefit from your expertise and start by asking you a little bit about the Eurodollar system and how it works. Everybody's still stuck in the Petrodollar, but that's from a long-gone era. So maybe help us understand a little bit the Eurodollar, how it works, and what it means for politics and international relations.

00:00:43.760 Well, like you said, the Petrodollar is more of a relic than anything else nowadays, whereas now the Eurodollar has surpassed the importance of what the Petrodollar was in the 70s. It is literally, it is the blood of the system of how the financial markets and the currency markets actually function.

00:01:06.760 I mean, for instance, if Sweden and Japan wanted to do trade, interact with trade, well, it's not as simple where Sweden sends krona to Japan or Japan sends yen to Sweden and then it gets exchanged.

00:01:24.260 There has to be a basis and a route for that financial settlement to actually work. And that only happens when the dollar is introduced as a basis. So you have yen converted to dollars at the New York Fed.

00:01:40.960 From the New York Fed, they transmit those dollars to the Swedish, where the Swedish get their amount of settlement that they agreed on.

00:01:52.020 A lot of people don't understand that without a U.S. dollar somewhere into the system, that currencies do not work. Commodities do not work.

00:02:02.260 I mean, you have to have a basis of something that actually gets, you know, that there's a basis of something that actually you can trade against.

00:02:09.780 There's a value set and a trade and settlement can happen according to that value.

00:02:15.400 Yeah. And so when countries, when you see talk about the BRICS and you see about the talk about BRICS countries or partners of BRICS countries trying to use their own currencies in trade without utilizing the dollar, how does that fit into the system and what kinds of problems does that introduce?

00:02:38.260 It doesn't fit into the system at all. I mean, the so-called BRICS currency is nothing more than a fantasy of anti-American and anti-dollar traders out there and political agents that want to sit there and undermine the system as we have now for something that simply cannot work politically.

00:02:58.060 I mean, you have India, which is a big rival to the Chinese in a system as a key component of BRICS.

00:03:05.180 It's like, how do you, how do you, how do you make that work?

00:03:09.100 You know, you have, you have, you have many, many countries that are actually broke and have incredible debts to their GDP, three, four, 500% of their GDP.

00:03:19.200 And you're talking about supplanting a system that's been around since the end of World War II.

00:03:25.420 I mean, it's really a silly prospect. China really only uses BRICS as an arbitrage situation where they can sell their cheap products and get commodities or even dollars back out of the system to service their own debts.

00:03:39.380 Right. And that's why you sometimes see them using the UAE as a financial center where they use the Emirati dirham, which is actually pegged to the dollar.

00:03:50.540 So it ends up being that they're trading in dollars, but they're saying they aren't.

00:03:56.540 And it sort of becomes a, you know, how do I, how do I get to my ear?

00:04:01.360 It becomes a roundabout way of, of fixing the problem.

00:04:05.920 And in terms of trading, just, you know, goods for actual commodities, there are problems with that, obviously, because the value of commodities changes quite a bit.

00:04:16.540 So if you end up getting paid in coal or in oil or whatever it is, that creates all kinds of exchange risks, creates all kinds of problems.

00:04:26.240 So it doesn't end up functioning in the same smooth way that the dollar provides.

00:04:30.800 Yeah. There's no elasticity where the dollar can be converted into digital form, cash form, loan, so on and so forth.

00:04:38.900 You can't do that with commodities. So on top of that, you have to verify commodities.

00:04:43.220 So if I give you a ton of gold and say, this is what the value is, I still need to, I need to transport it.

00:04:48.680 I need to secure it. I need to verify it. That takes time.

00:04:52.040 And in that time, like what are the fluctuations that have happened in that, in that timeframe?

00:04:57.260 So there's, there's, there's a lot of, there's a lot of problems of just having commodities as a, as a settlement procedure.

00:05:04.860 And that's why you're not a big believer in gold replacing the dollar as a, as an exchange mechanism.

00:05:11.400 No. Again, it comes with many, many problems.

00:05:14.540 And for instance, if you're going to have a reserve asset as a new, as a global neutral reserve asset, that introduces many, many issues.

00:05:22.480 I mean, if you look back historically, you'll see that the only time in history that you have a neutral reserve asset is in terms of multipolarity.

00:05:32.220 Well, multipolarity will end up leading into world wars because there has to be a hierarchy of nations and trade and militaries.

00:05:41.160 It's just the way nature works. I mean, people are trying to fight for so long, but you know, nature supersedes everything else.

00:05:48.060 No matter if you believe in it or not, it's just the way things happen.

00:05:52.480 And for, for gold to be such, for gold to surpass the dollar, you would have to have many, many nations on equal economic footing, on equal military footing.

00:06:03.680 And we are at least a hundred to 200 years away from such a, such an event.

00:06:08.220 Okay. Okay. Fair enough.

00:06:10.140 I'm, I'm going to pick up on that, um, multipolarity and whether or not we're heading towards multipolarity in, in a little bit down the line in the conversation.

00:06:18.720 Um, so with, with, with that in mind, uh, walk me through a little bit, the role of currency swaps and how the federal reserve stabilizes the global financial system.

00:06:31.780 Um, every single crisis we see, there are these massive, um, swaps that happen between the federal reserves and the world central banks.

00:06:40.680 Um, walk me through what that means and what it implies for the system and how it works.

00:06:47.480 Well, well, let's, let's take as an example, the ECB, which is probably the biggest benefactor of a swap lines from the fed.

00:06:56.380 So the ECB gets dollars into their system, right? Euro dollars, right?

00:07:02.120 And that's what, that's basically, they need a, they need a certain percentage of dollars in their system behind the Euro to stop hyperinflation.

00:07:09.940 So what they do is they get dollars and then they take those dollars, they lend it out to their other banks within the year, European union.

00:07:16.880 Well, those banks lend it out to localized banks.

00:07:19.400 So by the time you get to the localized banks and they start producing loans for their clients, you're talking about 10 to 15 times multiple of $1, right?

00:07:29.300 Right.

00:07:29.540 In loans.

00:07:30.380 Right.

00:07:31.080 So in, in times of economic strife, like we had in 2012, you have non-performing loans starting to cascade back onto the central banks, right?

00:07:40.540 Making them insolvent basically, right?

00:07:43.200 You know, you lend out $1 billion, well, $15 billion is coming back and you only have a billion dollars to back it up in your bank.

00:07:51.900 It's problematic, right?

00:07:54.100 So the fed has to step in these situations and send over more dollars to be able to combat those MPLs, non-performing loans, right?

00:08:05.100 Otherwise, the system gets out of whack and hyperinflation takes place.

00:08:09.160 And, you know, as you can see what happened in Zimbabwe, the same could happen to the European Union.

00:08:14.100 Although I'm, I'm making an extraordinary case in such a, such an event, but I'm doing it.

00:08:19.700 So I'm doing it specifically so people understand that without dollars at the, at the very base of the central banks, hyperinflation takes over.

00:08:28.260 Right. And this goes down to the way that money is created in the system.

00:08:34.100 Money is loaned and then multiples of that money is loaned and then further mult, so basically each dollar generated by the Federal Reserve becomes, by the time it reaches the recipients, 15, 20, many, many more multiples of the original dollar.

00:08:54.200 That's exactly.

00:08:54.700 So, so walk me through, um, walk me through this sort of, um, the influence that comes, that accrues to the United States as a result of how this operates.

00:09:10.040 What happens if the U.S. decides, uh, we're not going to give you any dollars?

00:09:14.060 Well, uh, you know, I have been a big proponent of such a, such an event to, uh, pressure a lot of the allies and adversaries and, you know, say, well, you're not going to get us dollars this time because, you know, it's beneficial to the United States because we get trade, we get trade, better trade deals, right?

00:09:32.340 We get better geopolitical leverage when needed, specifically with the European Union.

00:09:39.560 Uh, sometimes with Asia, I mean, the Chinese have been wise to the game where they've been arbitraging gold and commodities to offset that. 0.92

00:09:49.860 But, you know, again, at the end of the day, they still have to buy treasuries through proxies in the Caymans or Belgium to, uh, accumulate dollars for the system.

00:09:59.060 So, they have to, they have to, um, abide by certain, like, mathematic principles.

00:10:05.260 Right.

00:10:06.340 Right.

00:10:07.140 Um, and, and so how does that relate to the American budget deficit and to the American trade deficit?

00:10:14.420 This, this system can't operate without big deficits from the United States, right?

00:10:20.660 Yeah, that's correct.

00:10:21.600 I mean, the United States is the one that's swallowing all the deficits for, to enable trade to function globally.

00:10:26.360 I mean, there's, you know, uh, you have a lot of Americans that are, uh, opposed to this because they don't quite understand that without this system, without the system in place, that, you know, trade globally just stops.

00:10:39.900 And that affects not just the world, but affects the United States back at home because, you know, we don't, we don't make very many things on shore anymore.

00:10:47.860 We import quite a lot of things.

00:10:50.220 Right.

00:10:50.320 And so, with Trump trying to fix trade, to get better trade deals, to reduce the deficit, what does this do to the system?

00:10:57.960 Well, you know, that's really difficult to say because I don't think that Trump's tariff, uh, tariff plans are about really lowering the deficit and whatnot, but more about offsetting, uh, future spending.

00:11:12.900 Right.

00:11:13.380 So the tariffs that, that, uh, Trump introduced were nothing more, in my opinion, than, uh, generating revenue to be able to offset, uh, his tax cuts for the incoming, for the coming fall.

00:11:25.820 Right.

00:11:26.360 You saw that big, beautiful bill that he keeps mentioning.

00:11:29.740 Um, you know, there has to be offsetting, offsetting costs.

00:11:34.160 And the only way that the United States government can actually get that, make that work is with this tariff revenue.

00:11:40.180 Although the legality of that is quite questionable.

00:11:43.360 It's actually a gray area because normally they're not allowed to do such a thing.

00:11:48.000 But in the past couple of years, since Biden's been in office, I mean, 50, 60% of the American public have been in a recession.

00:11:56.540 So the government, government revenue has been, uh, quite damaged with that.

00:12:01.580 This is, this is probably the reason that the Trump tariffs were enacted to begin with.

00:12:07.240 So we heard from Biden and from Trump that the objective is to get the United States to re-industrialize and to re-shore a lot of industry into the United States because that's necessary for American jobs.

00:12:22.780 That's necessary for the well-being of the average American taxpayer.

00:12:27.280 Um, this seems to, to clash with the nature of the financial system and how the financial system works.

00:12:33.740 Yeah, I mean, I mean, it's, it's a good story for the, for, for elections, but the reality is such an event would be so drastic and it would take, you know, 10, 20 years to actually see fruits of such, such policies, uh, come about that.

00:12:50.700 It's just, I don't take it seriously.

00:12:53.080 I mean, sure, we can have a few auto jobs, you know, auto industry jobs come over to the United States just because of the tariffs and whatnot, but those are few and far between.

00:13:02.240 You're talking about maybe 50, 100,000 jobs total, right?

00:13:05.940 I mean, what, what, what do they really expect?

00:13:08.180 I mean, they're, they're, they say that they want, you know, new industries and new factories popping up in the United States.

00:13:14.260 Those are, those are, those are, you know, billion plus dollar investments that take, you know, a decade to, to materialize.

00:13:21.820 It's just, it's just not, not, it's not as simple as, you know, saying this is what we're going to do and it happened a year later.

00:13:28.140 It's, it doesn't work like that.

00:13:29.840 Okay.

00:13:30.740 Okay.

00:13:31.580 So what do you think he's trying to do?

00:13:33.220 Just do you, do you think Trump is sincere about this or do you think that he's just be using the cynically or do you think that he doesn't understand the system?

00:13:39.420 I just don't, I think that he doesn't understand the system, right?

00:13:42.640 You know, I think that he, initially he was, he was sincere in his motives, but once, once Besant and other people got involved and actually described what, what, what it is, what, what goes on in the financial system.

00:13:58.220 I think that at this point, it's more about, it's more about creating a narrative on the markets and the, and the U.S. economy more so than actually producing anything on shore.

00:14:09.060 Okay.

00:14:09.900 So, and you think he's understood that this can't be done and he's accepted this?

00:14:14.140 Oh, at this point.

00:14:15.380 Yeah, I'm sure he has.

00:14:16.580 I'm sure, I'm sure he understands that this can't be done in the timeframe that he keeps talking about in the, in the media.

00:14:21.980 There's just no way.

00:14:23.260 Okay.

00:14:24.100 Because setting up these factories takes, you know, five years, 10 years for it to actually become functional and productive, for it to actually transform things.

00:14:33.440 And therefore, this is a marathon if it is to be done at all.

00:14:39.040 And if it is to succeed, it will come at the cost of breaking the financial system as we know it.

00:14:45.060 Yeah, of course.

00:14:45.900 And on top of that, you have regulations in the United States that makes things costly.

00:14:49.240 Like the EPA, the Environmental Protection Agency has, you know, a lot of regulations.

00:14:54.400 So whenever you start building a factory or have these plans to do so, you have to go through a gauntlet of regulations on top, before you even start breaking ground and building a factory.

00:15:04.680 Yeah.

00:15:04.800 So, you know, the reality is, you know, you're talking about two, three years of just, you know, legal work before a shovel hits the ground.

00:15:13.760 Yeah.

00:15:13.920 Yeah.

00:15:14.400 Yeah.

00:15:14.800 So, okay.

00:15:15.900 Fair enough.

00:15:16.820 Fair enough.

00:15:19.520 You've always mentioned that the Federal Reserve manipulates the markets and the Federal Reserve has a massive influence on the S&P 500 and sometimes on specific shares.

00:15:31.640 Could you help us understand this a little bit better?

00:15:34.580 I'm not sure I've personally understood it very well.

00:15:37.180 What are the mechanics behind it?

00:15:39.260 How does it work?

00:15:40.100 What does it mean?

00:15:40.920 Well, it's not just the Federal Reserve.

00:15:42.520 It's also the Treasury Secretary.

00:15:44.560 Like, for instance, Yellen would use proxies.

00:15:47.080 And when I mean, say proxies, I mean other hedge funds, other sovereign wealth funds like the Norwegians, which is a big one, to pump the market.

00:15:56.560 So they'd, you know, buy a lot of shares of certain stocks, which mostly would have been the MAG-7, the tech stocks, because they're the easiest to move.

00:16:06.140 And the market would go up, right?

00:16:08.120 And then on the other side, the Federal Reserve, when they want to lower the price of oil, for instance, because that helps tech stocks and bonds, it's tied in a web.

00:16:19.640 They have a trade desk with about 200 people that they can just start selling contracts on the futures market until the price of oil goes down, right?

00:16:27.840 And I get into many arguments with people.

00:16:32.160 They're like, oh, they can't be doing this.

00:16:33.580 I'm like, why can't they be doing this?

00:16:35.360 Why can't they?

00:16:36.300 They have unlimited budget.

00:16:37.560 They have no one to answer to, right?

00:16:39.820 Specifically the Federal Reserve, right?

00:16:41.320 They actually can create dollars that are temporary, that only last for like a month or a week.

00:16:47.880 So they go into the system, they get evaporated out of the system.

00:16:51.420 So you never see it on the balance sheets.

00:16:53.620 How does that work?

00:16:54.840 How does that work?

00:16:56.020 Yeah.

00:16:56.980 You just add a zero to the accounts.

00:16:59.080 That's it.

00:16:59.520 Just keep adding zeros to the account.

00:17:01.340 And then whenever the account comes, you know, whenever money hits that same account, you remove a zero.

00:17:07.100 Right.

00:17:08.160 And they can just do it.

00:17:09.800 And they have their own.

00:17:10.840 So that's the thing that people have to understand is they have no really accountability to Congress or the president or anybody.

00:17:16.640 They actually have their own charter, which they can modify at any time they want.

00:17:21.820 It's a private bank.

00:17:23.280 It's not a public anything.

00:17:24.980 You know, although the president appoints a chairman, he doesn't really work for the president anymore.

00:17:29.420 He doesn't have to listen to the president.

00:17:30.600 He can't even get fired from the president.

00:17:32.860 But that's why whenever Trump comes out there and says, I'm going to fire Jerome Powell or so on and so forth, nobody really believes it because he knows he can't do it.

00:17:40.880 How does that mix with democracy and institutions and elections?

00:17:46.820 It seems that this sort of...

00:17:47.520 So you're talking about a system that's the reserve currency, right?

00:17:53.620 You have to have such safeguards because if there's a problem in the system where markets are crashing and so on, price of oil is going to 200, so on and so forth, you need safeguards.

00:18:04.640 You cannot allow such thing to happen because governments will fall.

00:18:08.440 Right.

00:18:08.620 So you have to have these safeguards.

00:18:10.900 Now, do you use these safeguards in a politicized way for elections?

00:18:15.100 I certainly should not be doing that.

00:18:17.900 But unfortunately, it happened under Biden many times and quite a few of the elites in Wall Street were actually really, really upset about it.

00:18:30.300 And that's why you saw a few of them flip over to Trump for the election.

00:18:34.620 And there's no way to sort of hold Jerome Powell accountable for that kind of thing or to sort of say, don't you dare do this again or don't do this next time or anything of that sort?

00:18:44.320 No, because if you sit there and admit it, so if Trump comes out and says that, you know, they start admitting to manipulation of the markets, it would throw the global markets in a tizzy.

00:18:55.760 I don't even know what would happen or how much trust would be lost in the system, right?

00:19:00.960 This is like, these are like phantom accounts that are supposed to be safeguards.

00:19:05.780 Everybody on a certain level knows these things exist, but they don't really want to believe they exist and especially politicize this as much as it's been.

00:19:15.140 Right, right, right.

00:19:16.420 And the system is fundamentally built on, you know, American military power and faith in that system.

00:19:23.780 So the minute that the faith in the system breaks down, the consequences can be traumatizing.

00:19:30.540 Yeah, of course.

00:19:31.940 I mean, that's the thing that the American superiority is based on.

00:19:34.880 Like you said, the U.S. military is unrivaled, right?

00:19:38.060 Right.

00:19:38.220 And on top of that, America's legal framework and trust in the system is unrivaled.

00:19:43.020 But you start to break that down, especially for the financial markets, and then you have a significant problem.

00:19:48.960 If you enjoyed this piece of premium content from the Lotus Eaters, head to our website where you can find more.

PREVIEW： Realpolitik #7 ｜ Money and Geopolitics with Albert Marco

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